Governance and Governance and DevelopmentDevelopment

Presented to:Presented to:

Public Sector and Anticorruption Core CoursePublic Sector and Anticorruption Core CourseApril 23-26, 2007April 23-26, 2007Washington D.C.Washington D.C.

Presented by:Presented by:

Ed CamposEd CamposGovernance Adviser for BangladeshSASPR

The ‘Prohibition’ Era

1980 1990 1995 1996 1997 1998 1999 2000 2001 2002 2003

WDR on Institutions 1982

JDW “Cancer of Corruption” Speech (10/96)

State in a Changing World (97)

• Diagnostic/Data/ Monitoring Tools

• Public Financial Management and Procurement

• Administrative & Civil Service Reform

• Civil Society Voice, Transparency, & CDD

• State Capture

• Legal & Judicial Reform

Broadening & Mainstreaming

The World Bank has come a long way in a brief period of time

TI CPI (5/95)

Anti-corruption Strategy (97)

Governance Strategy (00)

1st set of firms Debarred from WB (99)

Formalization of INT (01)

Strategic Compact (97)

O.P. Mainstreaming AC in CAS (99)Governance

Pillar - CDF (98)

Internal AC unit created in WB (98)

Gov/A-C Diagnostics start (98)

20042005

Board endorses Integrity Strategy (04)

PSG Implementation Update (02)

PW Bank President (05)

2006

Aid, Governance, andDevelopment Outcomes

Governance and Development: Lessons of Global Experience

• An effective state is crucial for growth and poverty reduction (WDR ’97)

• For an effective state, good governance is a cross-cutting priority for:

– Building a sound investment climate for growth (macroeconomic stability, rule of law, regulatory system, physical & financial infrastructure)

– Empowering people to make growth inclusive through effective delivery of basic services (education, health, social protection)

Good Governance matters for Good Governance matters for investment and growthinvestment and growth

10%

15%

20%

High Medium Low

% Investment share in GDP

High Medium Low

-1.5%

0%

1%

2%

1.5%

-0.5%

-1.0%

0.5%

Income per capita Growth Rate

Governance QualityGovernance QualityGovernance Quality measured by perception of 4000 firms in 67 countries on: (i) protection of property rights; (ii) judicial reliability; (iii) predictability of rules; (iv) control of corruption. World Development Report Survey 1997

Corruption and Growth in Bangladesh

For Bangladesh, a reduction of corruption from its observed level (measured by ICRG corruption index) to a level of, say, Poland would increase the annual average growth rate during 1990-97 by 2.14 percentage points (raising average per capita growth rate to 5.5 percent). The latter growth rates, if extrapolated to 1990-2004, would yield a per capita income about 1/3 above the current level.

Source: Extrapolated based on Rahman, Aminur, et al, Estimating the Effects of Corruption: Implications for Bangladesh, PRWP #2479, World Bank, 2000

The direction of causality …

Burkhart and Lewis-Beck (1994) found that while higher per capita incomes foster democracy, democracy in turn does not foster higher incomes

B. Friedman (2005) argues that higher living standards encourage more open, tolerant and democratic societies

Growth causes governance to improve ...

… and better governance causes growth

Using measures of rule of law, bureaucratic quality and corruption, Chong and Calderon (2000) found significant causality from good governance to growth and vice versa – i.e. “good governance” both contributes to and results from strong economic performance

Other studies have dealt with the potential for reverse causation by using exogenous instruments for the governance indicators and concluded that good governance has a significant and strong causal impact on economic performance …

… … but the debate on causality continues …but the debate on causality continues …

Good governance is pro-poor

Source: Knack, 2002

12

18

24

0 10 20 30

increaseby 10points

increaseby 15points

increaseby 20points

Reduction in the percentage of population living on less than

$2/day due to the increase in the quality of governance (ICRG

composite index)

0.33

0.21

0.21

0.22

0.16

0 0.1 0.2 0.3 0.4

1(poorest)

2

3

4

5 (richest)

inc

om

e q

uin

tile

s

Additional annual income growth due to an increase in the quality of governance (ICRG composite index) by 1 point

Gove

rnan

ce &

Gro

wth

Political Accountability• Political competition, broad-based political

parties• Transparency & regulation of party financing• Disclosure of parliamentary votes

Formal Oversight Institutions

• Independent, effective judiciary

• Legislative oversight (PACs, PECs)

• Independent oversight institutions (SAI)

• Global initiatives: UN, OECD Convention, anti-money laundering

Citizen

s/Firm

s

Citizens/Firms

Cit

izen

s/F

irm

s

Citizens/Firms

Decentralization and Local Participation• Decentralization with accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups• Beneficiary participation in projects

Civil Society & Media• Freedom of press, FOI• Civil society watchdogs• Report cards, client survey

Private Sector Interface• Streamlined regulation• Public-private dialogue• Extractive Industry

Transparency• Corporate governance• Collective business

associations

Effective Public Sector Management

• Ethical leadership• Public finance

management & procurement

• Civil service meritocracy & adequate pay

• Service delivery and regulatory agencies in sectors

Good Governance has many dimensions

Outcomes: Services,

Regulations

Political Accountability• Political competition, broad-based political parties• Transparency & regulation of party financing• Disclosure of parliamentary votes

Formal Oversight Institutions

• Independent, effective judiciary

• Legislative oversight (PACs, PECs)

• Independent oversight institutions (SAI)

• Global initiatives: UN, OECD Convention, anti-money laundering

Citizen

s/F

irms

Citizens/Firms

Cit

izen

s/F

irm

sCitizens/Firms

Local Participation & Community Empowerment• Decentralization with accountability• Community Driven Development (CDD)• Oversight by parent-teacher associations & user groups• Beneficiary participation in projects

Civil Society & Media• Freedom of press• Freedom of information• Civil society watchdogs• Public hearings of draft

laws• Report cards, client surveys• Participatory country

diagnostic surveys

Private Sector Interface• Streamlined regulation• Public-private dialogue• Break-up of monopolies • ICA/Doing buisness• Extractive industries • Corporate governance• Collective business

associations

Effective Public Sector Management

• Ethical leadership• Public finance

management• Civil service

administration• Sector management: Service delivery Regulation

The Bank operations focus only on some

Primary focus of WB operations in governance

Outcomes: Services,

Regulations, Corruption

Public Financial Management

Raising Revenues

Management of Public Finances

Tax/Customs Administration

Allocating Revenues Budget Formulation

Using Revenues Budget Execution

Cash/Treasury MgmtProcurement

AuditingInternal Controls

Reporting

Public sector accounting

Integrated FMIS

Administrative and Civil Service Reform

Personnel ManagementRecruitmentPromotionTransfersCareer managementTraining

Organizational Design

Internal RestructuringCorporatizationExecutive AgenciesOutsourcingPrivatization

Governance and Corruption Not the same thing!

The manner in which the StateStateacquires and exercises itsauthority to provide public goods and services

Using publicpublic office for privateprivate gain

GovernanceGovernance

CorruptionCorruption

•Corruption is an outcome – a consequence of weak or bad governance

•Poor delivery of services and weak investment climate are other outcomes of bad governance

Reputational RiskReputational Risk

That Bank lending in countries with corrupt leaders will tarnish the

Bank’s reputation

Fiduciary RiskFiduciary Risk

That Bank resources will be misappropriated

and in some cases loans may not be

repaid

Development Effectiveness Risk

Development Effectiveness Risk

That corruption will undermine the impact of development efforts in general and in Bank-supported projects

Corruption poses three risks

CorruptionCorruption

Administrative CorruptionAdministrative Corruption::Private payments and other benefits to public officials in connection with the implementation of government policy and regulations

State CaptureState Capture::Influence of powerful economic interests in the public and private sectors in the formation of laws, regulations, policies through illegal provision of private benefits for public officials

Nepotism & PatronageNepotism & Patronage::

Favoritism shown to narrowly targeted interests by those in power such as granting favors, giving contracts or making appointments to office in return for political support

Poor Governance

Lack ofTransparency

Weak Voice &Accountability

Monopoly Power

Wide Discretion

Inefficiency

Corruption

When Governance Breaks Down . . .

Outcomes: Services,

Regulations, Corruption

Political Actors & Institutions• Political Parties

• Competition, transparency

Executive-Central Govt

Service Delivery & Regulatory Agencies

Subnational Govt & Communities

Formal Oversight

Institutions• Parliament• Judiciary• Oversight institutions

Civil Society & Private

Sector•Civil Society

Watchdogs•Media

•Business Associations

Cross-cutting Control Agencies (Finance, HR)

Citizen

s/Firm

s

Citizens/Firms

Cit

izen

s/F

irm

sCitizens/Firms

State Capture

Patronage &

Nepotism

Administrative

Corruption

• Unbundle governance – What are the specific governance problems of concern? (Diagnostics)

– Corruption? If so, where is it concentrated? Health? Education? Financial sector? Procurement? Grand corruption and capture? Administrative corruption?

– Poor delivery of public services? If so, which one?– Insufficient private investment?

(Integrating Governance into the CAS: http://www1.worldbank.org/publicsector/anticorrupt/documents/items of special interest)

• Analyze underlying dynamics – What are the specific drivers of poor outcomes? (Political Economy/Institutional Analysis)

– Powerful interests purchasing state policy for private interest– Lack of citizen voice to influence service delivery– Weak checks and balances to constrain arbitrary action

• Sequence reforms and donor strategies – How to support drivers of change? (Implementation strategy)

– Analyze and support drivers of change– Develop appropriate sequencing of public management and checks & balances– Balance supply side interventions with demand side pressures– Rely on multidonor partnerships, based on mandate & comparative advantage

(Managing the Politics of Reform: http://www1.worldbank.org/publicsector/anticorrupt/)

Improving GovernanceAn Overall Operational Approach

Diagnostics: Drilling Down

• Diagnosing GovernanceDiagnosing Governance as a wholeas a whole• Assessing the incidence ofAssessing the incidence of particular forms of particular forms of

corruptioncorruption: where are the most affected areas?where are the most affected areas?• Evaluating corruption inEvaluating corruption in cross cutting cross cutting

government processesgovernment processes, e.g. procuremente.g. procurement• Evaluating corruption at theEvaluating corruption at the sector levelsector level, e.g. e.g.

educationeducation• Assessing risks at the Assessing risks at the project levelproject level

• Rule of law• Political stability• Voice and accountability• Government effectiveness• Regulatory quality• Control of corruption

“Measuring” Quality of Governance and Corruption at the Country Level(Kaufmann-Kraay indices:)

http://www.worldbank.org/wbi/governance/pubs/govmatters4.htmlhttp://www.worldbank.org/wbi/governance/pubs/govmatters4.html

Control of Corruption: Cross country ComparisonsControl of Corruption: Cross country Comparisons

Governance Indicators: Bangladesh

“Measuring” Quality of Governance and Corruption at the Country Level: Other SourcesOther Sources

• The Open Budget Index (http://www.openbudgetindex.org/OpenBudgetIndex2006.pdf)

• Global Integrity Index (http://www.globalintegrity.org/2004/scores.aspx?cc=id&act=scores)

5

10

15

20

25

30

Proportion of firms affected by capture of …

HungaryHungary EstoniaEstonia RussiaRussia UkraineUkraine

Parliamentary VotesParliamentary Votes

Presidential Admin. DecreesPresidential Admin. Decrees

Civil Court DecreesCivil Court Decrees

Forms of Corruption: Assessing State CaptureForms of Corruption: Assessing State Capture

Service Delivery: Composition of Total Bribes Paid by Households in Cambodia

Forms of Corruption: Administrative CorruptionForms of Corruption: Administrative Corruption

The “Bribe Fee” List: The “Bribe Fee” List: Unofficial Payments by Firms in UkraineUnofficial Payments by Firms in Ukraine

EnterprisesEnterprisesType of License/Service/”Favor” Type of License/Service/”Favor” Average fee required Average fee required admittingadmitting need to pay need to pay

(1996)(1996) “unofficially“unofficially””

Enterprise registration $176 66%Each visit by fire/health inspector $42 81%Tax inspector (each regular visit) $87 51%Telephone line installation $894 78%Lease in state space (square ft. per month) $7 66%Export license/registration $123 61%Import license/registration $278 71%Border crossing (lump sum) $211 100%Border crossing (percent of value) 3% 57%Domestic currency loan from bank on 4% 81% preferential terms (percent of value)Hard currency loan on preferential 4% 85% terms (percent of value)

Forms of Corruption: Administrative CorruptionForms of Corruption: Administrative Corruption

Albania

Georgia

Latvia

00 2020 4040 6060 8080

Customs inspectorsCustoms inspectors

Tax inspectorsTax inspectors

Natural resource Natural resource licenserslicensers

JudgesJudges

Ordinary policeOrdinary police

Investigators/ Investigators/ prosecutorsprosecutors

Local officialsLocal officials

MinistersMinisters

Public Officials Surveys: Public Officials Surveys: Purchasing Public PositionsPurchasing Public Positions

Percent of public officials believed to have purchased their positionsPercent of public officials believed to have purchased their positions

Based on 1998 World Bank surveys of public Based on 1998 World Bank surveys of public officials in these countries: 218 public officials in these countries: 218 public officials in Latvia (with Latvia Facts); 350 officials in Latvia (with Latvia Facts); 350 public officials in Georgia (with GORBI); and public officials in Georgia (with GORBI); and 97 public officials in Albania (with ACER).97 public officials in Albania (with ACER).

48486060

4141

52524141

2525

43433333

3939

2727

32321616

2525

1010

40402323

55

1818

2424

33333232

1414

2121

1919

Forms of Corruption: Patronage & the Market for Public OfficeForms of Corruption: Patronage & the Market for Public Office

Sector Level: The Value Chain & Corruption Risk Mapping

Service Delivery

Registro Adquisici ón Registration Procurement Distribution Selection

• Efficacy

• Labeling

• Marketing

• Use

• Warnings

• Full registration

• Reevaluation of older drugs

• Determine budget

• Assess morbidity profile

• Determine drug needs to fit morbidity profile

• Cost/benefit analysis of drugs

• Consistency with WHO criteria

• Determine model of supply/

• distribution

• Reconcile needs and resources

• Develop criteria for tender

• Issue tender

• Evaluate bids

• Award supplier

• Determine contract terms

• Monitor order

• Make payment

• Quality assurance

• Receive and check drugs with order

• Ensure appropriate transportation and delivery to health facilities

• Appropriate storage

• Good inventory control of drugs

• Demand monitoring

• Consultation with health professional

• In-patient care

• Dispensing of pharmaceuticals

• Adverse drug reaction monitoring

• Patient compliance with prescription

ServiceDelivery

DistributionSelection ProcurementRegistration

Health Sector -- Delivery of Essential Drugs

Health Sector: Delivery of Essential Drugs

Registration

Selection

Procurement

Distribution

Prescription & Disbursement

Monitoring based on

transparent & uniform

standards

Tracking systems

User surveys

Media coverage of drug

selection committee meetings

Competition & Transparency

Tackling decision points vulnerable to corruptionTackling decision points vulnerable to corruption

Stages of the Procurement Process

Contract Implementation

Procurement Planning

Preparation

Pre-qualification

Bid Evaluation

Award of Contract

Advertisement

Public Procurement: Process Flow &Corruption Risk Mapping

Procurement of goods and civil works

• Lack of PlansLack of Plans

Mis-governancePossible Distortion

Problem Area

• Purposeful Purposeful delay of delay of procurement to procurement to feign “urgency” feign “urgency” and go to direct and go to direct negotiationnegotiation

Lack of Lack of competitiocompetitionn

Procurement Planning: Corruption Vulnerabilities

• Unclear Unclear Criteria for Criteria for Project Project SelectionSelection

• misallocation of resources

Lack of Lack of TransparenTransparencycy

Procurement of goods and civil works

Mis-governancePossible Distortion

Problem Area• PMO given sole PMO given sole

responsibility responsibility over the over the determination of determination of contract contract packages and packages and preparation of preparation of specifications specifications (for civil works)(for civil works)

• Contract Contract splitting to allow splitting to allow unqualified unqualified bidders to bidders to participate or to participate or to revert to revert to “simplified” “simplified” biddingbidding

• tailor fitting to tailor fitting to favor a preferred favor a preferred bidderbidder

• BAC BAC members members designated designated solely by Head solely by Head of agency of agency

• BAC members BAC members chosen to stack chosen to stack deck in favor of deck in favor of Head’s choice of Head’s choice of contractorcontractor

Lack of Lack of competitioncompetition

Lack of Lack of TransparencyTransparency

Preparation: Corruption Vulnerabilities

How can we improve governance and reduce corruption?

Enhancing Enhancing TransparencyTransparency

The Power of Transparency and Monitoring: PETS & Primary Education in UgandaPETS & Primary Education in Uganda

Source: Reinikka and Svensson (2001), Reinikka and Svensson (2003a)

BIR Officials Amass Unexplained Wealth

by Tess Bacalla Philippine Center for Investigative Journalism

The three-part series concludes by looking at the breakdown in the system of checks and balances in the BIR and the lack of transparency, oversight and accountability that contribute to making the bureau one of the most corrupt government agencies.

Lucien Sayuno, Makati regional director of the BIR lives in this

house in posh Ayala Alabang Village. Parked in his garage are a

Ford Expedition, a Toyota Land Cruiser, and a brand new BMW.

[PCIJ Photo]

LIKE MANY of its neighbors, the house at 266 Cuenca St. in posh Ayala Alabang Village looks like a multimillionaire's home. Expensive orchids adorn its landscaped front lawn while the house itself is imposing, the use of the best materials evident.

Recently seen parked in its garage were luxury vehicles, including a white Land Cruiser, a blue Ford Expedition and a new blue BMW. The occupants of 266 Cuenca, however, are not movie stars or business moguls. Instead, it is the home of a government official whose annual salary is less than P300,000.

FreedomOf

Information

Why isn’t this man smiling? Media Freedom

Strengthening Strengthening AccountabilityAccountability

The Report Card: Improving Public Services in Bangalore

 

5 6 49

25

1

14

4147

42

67

34 34

16

32 32

73

94

73

92

7378

85

96

77

n/a n/a0

10

20

30

40

50

60

70

80

90

100

Agencies

% s

atis

fied

1994 1999 2003

Source : PAC

Strengthening Demand for Public Financial Accountability

Participatory Budgeting,

Porto Alegra(Brazil)

Civil Society Oversight; transparent, competitive

procurement(Slovakia)

Strengthening Supreme Audit Institutions

(Hungary)

Public Expenditure Tracking & Information Campaigns (Ghana, Madagascar, Mozambique, Peru, Senegal, Tanzania, Zambia)

Procurement oversight by

CSOs (Philippines)

Strengthening Public Accounts Committees of

Parliament(India)

Transparent, competitive e-procurement

(LAC) Strengthening Public Accounts Committees

of Parliament (Kenya, Ghana, Zambia --

AFR)

Accountability, Transparency & Integrity

Project(Tanzania)

PEFA Indicators: Monitoring Progress

Predictability and Control in Budget Execution

Transparency of taxpayer obligations and liabilities 

Effectiveness of measures for taxpayer registration and tax assessment

 

Effectiveness in collection of tax payment 

Predictability in the availability of funds for commitment of expenditures

 

Recording and management of cash balances, debt and guarantees

 

Effectiveness of payroll controls 

Competition, value for money and controls in procurement 

Effectiveness of internal audit controls for non-salary expenditure

 

Effectiveness of internal audit 

Credibility of the Budget

PI-1

Aggregate expenditure out-turn compared to original approved budget

       

PI-2

Composition of expenditure out-turn compared to original approved budget

       

PI-3

Aggregate revenue out-turn compared to original approved budget

       

PI-4

Stock and monitoring of expenditure payment arrears

       

Increasing Increasing Competition &Competition &

Reducing Discretion Reducing Discretion

Public Procurement

Using ICT:Using ICT: ChileChile

All supplier companies register, indicating areas of business (e.g., IT, construction, furniture)

Public agencies submit tenders through internet

Automatic e-mail to all companies in selected area

Online information on name, position of official in-charge

Online information on results: who participated, proposals made, scores received, who won bid, historical record of agency’s purchases and contracts

Engaging CSOs:Engaging CSOs: PhilippinesPhilippines

Legal foundation a mess with over 100 laws and regulations

New omnibus law needed for clarity and predictability in the process

New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests

For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO

Extensive training of CSOs now under way

Legal foundation a mess with over 100 laws and regulations

New omnibus law needed for clarity and predictability in the process

New law in 2003 with determined efforts of reform minded public officials allied with strong and unified advocacy efforts of CSOs to offset entrenched vested interests

For credible enforcement: requirement that all bids and awards committees must have at least one observer from a certified CSO

Extensive training of CSOs now under way

Emerging Issues

Reducing corruption in high-risk countries: Reducing corruption in high-risk countries: Priorities for actionPriorities for action

Better understanding and management of political economy of reforms

Tackling political corruption (e.g. party finance, electoral corruption, etc. ) with partners

Partnerships and new instruments to support demand-side initiatives: working with civil society, media, parliamentarians

Tackle governance challenges in sectors (e.g., power, ports, extractive industries)

Develop operational strategies to engage with corrupt leadership in clientelist, captured states

Improving Governance SystemsMatching Supply and Demand

Supply-sideSupply-side Strengthen capacities and organizational arrangements – leadership, skills, human resource & financial management systems – embodied in state institutions to deliver public goods and services

Demand-sideDemand-side Strengthen accountability arrangements that enable citizens and firms to hold state institutions and officials responsible for decisions and outcomes:State institutions --elections, political parties, parliaments, judiciariesNon-state institutions -- free press/media, civil society organizations

Creating Reform CoalitionsCreating Reform Coalitions Philippines: Procurement ReformPhilippines: Procurement Reform

Transparency and Accountability Transparency and Accountability Network (20+ member groups)Network (20+ member groups)

Walang Ku-Corrupt Movement Walang Ku-Corrupt Movement (Youth)(Youth)

PAGBA &PAGBA &AGAPAGAP(w/in (w/in Gov’t)Gov’t)

CBCP(Church)

Philippine Contractors Association(private sector – main takeholder)

Local chambers of Commerce (Private sector)

Procurement Watch:Procurement Watch:Drew other civil society groups Drew other civil society groups into the advocacy efforts and into the advocacy efforts and

coordinated the activitiescoordinated the activities

Media

Private Sector

Municipal Government

Military

State (Bureaucracy)Political Parties

Civil Society

International Legislative Branch

Judiciary

1

Entrenched Corruption Networks: Entrenched Corruption Networks: The Case on Montesinos in PeruThe Case on Montesinos in Peru

Source: “Robust Web of Corruption: Peru’s Intelligence Chief Vladimiro Montesinos,” Kennedy School of Government Case Program, Case C14-04-1722.0, based on research by Professor Luis Moreno Ocampo; Peru: Resource Dependency Network, 2000

Vladimiro Montesinos

Alberto Fujimori

Reaching Out Reaching Out

Radio: The swath Radio: The swath & the dagger& the dagger

Using Communications StrategicallyUsing Communications Strategically

Print Media: Print Media: Amplifying the Amplifying the

problemproblem

TV: Raising the TV: Raising the anteante

Advertising: Creating a Advertising: Creating a ‘brand name’‘brand name’